ABSTRACT
In the period of the former Code of Obligations numbered 818, the possibility of three-party contracts was a subject of debate. With the enactment of the Turkish Code of Obligations numbered 6098, these debates ended, and the security mechanisms in our legislation became applicable to these contracts as well.
I. INTRODUCTION
Securities (guarantees) are used especially in commercial relations and provide parties with the opportunity to eliminate or reduce their losses that may arise from the other party’s failure to fulfill its obligations arising from the legal relationship between them.
The parties decide whether to use such systems during the contract negotiation phase, within the scope of contractual freedom, based on their commercial discretion.
In the first part of this study, contracts in the Turkish legal system are explained, and information is provided about the distinctions made regarding the formation and number of parties to contracts. In the second part, explanations are made about examples of three-party contracts in the Turkish legal system and the practices of other countries (especially American Law).
Finally, in the third part, the security (guarantee) mechanisms in the Turkish legal system are explained, and information is provided about the types of security in general.
II. CONTRACTS IN TURKISH LAW
According to Article 1 of the Turkish Code of Obligations (TCO) numbered 6098, published in the Official Gazette numbered 27836 dated 04.02.2011; “A contract is formed by the mutual and concordant declarations of intent of the parties.”
Although Article 1 of the Code of Obligations numbered 818 (“Former Code of Obligations”) states that the formation of a contract requires the mutual and concordant declarations of intent of two parties, in the TCO numbered 6098, the phrase “parties” is used instead of “two parties”, implying that contracts may have more than two parties1.
Although it is essential for contracts to have two parties in Turkish Law, as we will explain in the following sections, there are also multi-party contracts that constitute an exception to this situation. In the following sections of this article, general information about the formation of contracts will be provided, and general explanations and examples of three-party contracts will be given.
A. Formation of Contracts in Turkish Law
As stated above, for a contract to be validly formed, mutual and concordant declarations of intent of the parties are required. For the formation of mutual and concordant declarations of intent, one of the parties must make an offer (proposal) to the other party, and the other party must accept this offer2.
In addition to the concordant declarations of intent, there are conditions required for the contract to have legal effect for the parties. These are: (i) the capacity of the parties, (ii) the contract not being contrary to mandatory legal rules, public order, morality, and personality rights, (iii) the subject matter of the contract not being impossible, (iv) the declarations of intent of the parties being sound, and (v) the absence of collusion.
If the law does not specify a special requirement form, the fulfillment of the conditions mentioned above is sufficient for the formation of contracts. The written and signed form of the contract is for ease of proof. Moreover, Article 11 of the TCO regulates this situation; “The validity of contracts is not subject to any form, unless otherwise provided by law.” Form requirements are generally divided into two as “ordinary written form” and “official form”3.
B. Types and Distinctions of Obligation-Creating Contracts
It is possible to divide contracts into two main categories such as “obligation-creating contracts” and “other contracts”. Obligation-creating contracts are subject to some distinctions within themselves. These are: (i) the distinction made in terms of the obligations imposed on the parties, (ii) the distinction made as to whether the contract is regulated by law, and (iii) the distinction made in terms of duration.
1. Distinction Made in Terms of Number of Parties
Contracts are divided into two main groups in terms of the number of parties: “contracts imposing an obligation on one party” and “contracts imposing an obligation on two parties”. In contracts imposing an obligation on one party, as the name suggests, only one of the parties to the contract undertakes an obligation. The most common example used in the literature for such contracts is donation contracts. In these contracts, the donor undertakes to deliver a determined performance without any consideration. Since the other party does not undertake any obligation, these contracts are called contracts imposing an obligation on one party or unilateral contracts4.
In contracts imposing an obligation on two parties, the parties undertake to perform reciprocal performances. The most basic example that can be given for this type of contract is sales contracts. In such contracts, the seller undertakes to transfer the ownership of a determined product to the buyer, while the buyer undertakes to pay the price of the product to the seller. Considering that a large majority of the contracts in practice are made between two parties and that the parties have reciprocal performances, it is possible to multiply the examples that can be given to these contracts. In the literature, some authors also refer to such contracts as “bilateral contracts”5.
2. Distinction Made in Terms of Legal Regulation
Another distinction made regarding contracts relates to whether the contract is regulated by law. Contracts regulated by law are called “typical contracts”, while contracts not regulated by law are called “atypical contracts”.
Typical contracts are regulated by law, and it is possible to produce many examples of such contracts. Sales contracts, lease contracts, agency contracts, and suretyship contracts regulated in the TCO can be given as examples.
Atypical contracts can be grouped under three headings: (i) mixed contracts, (ii) combined contracts, and (iii) sui generis contracts. Mixed contracts can be defined as contracts created by combining various contract types6. In combined contracts, performances relating to at least two independent contracts are combined in a single contract. For example, a trader who wants to transfer his commercial enterprise agrees that after the transfer, the transferee will sell a certain portion of the products produced by the transferee to the transferor. In a contract made with this structure, the transferor agrees to transfer his commercial enterprise only if the transferee undertakes to sell a certain amount of products to the transferor. At this point, we should note that some authors consider combined contracts as a type of mixed contract. The elements of sui generis contracts, the last type of atypical contracts, do not carry the elements of a contract already regulated by law. In the literature, settlement agreements and exclusive dealership agreements are given as examples of sui generis contracts7.
3. Distinction Made in Terms of Duration
We can divide contracts into two categories in terms of duration: “instantaneous performance contracts” and “continuous performance contracts”. In instantaneous performance contracts, one of the parties performs its performance at the time of the formation of the contract or after a certain period of time from its formation. The most typical examples of this are the obligation to pay the price in sales contracts. In continuous performance contracts, one of the parties fulfills its performance over a certain period of time. Lease contracts can be given as an example. In lease contracts, the lessor’s main obligation is to allow the lessee to use the leased goods or real estate. The lessee’s main obligation is to pay the rent for the agreed period.
III. THE CONCEPT OF THREE-PARTY CONTRACTS
A. Definition
In the sections above, we tried to define the concept of contract. In this section, the concept of a three-party contract will be discussed as an exception to the situation where the contracts mentioned above have two parties.
For a contract to be qualified as a three-party contract, it is not sufficient for the contract to have three different parties (these can be real or legal persons). As we pointed out in the section on the distinction made in terms of the number of parties, the parties must have different performances. In this context, for us to talk about the existence of a three-party contract, there must be three different performances belonging to three different parties in the contract.
The existence of three parties to a contract is not sufficient for it to be considered a three-party contract because two different persons can undertake the same performance. Therefore, although it seems as if there are three parties to the contract, in fact, the contract has two parties.
B. Difference from Contracts for the Benefit of a Third Party
Except for certain exceptions, contracts create relative relationships8. In other words, the consequences of the performance or non-performance of the contract occur between the parties. One of the exceptions to this situation is contracts for the benefit of a third party. In contracts for the benefit of a third party, as stipulated in Article 129 of the TCO, the parties to the contract perform their performances to a third party who is not a party to the contract.
According to the prevailing view in the literature, there are two types of contracts for the benefit of a third party: “incomplete contracts for the benefit of a third party” and “complete contracts for the benefit of a third party”. The main difference between them is the rights granted to the third party. If the contract stipulates that the performances will be made to the third party, and in addition, the third party is granted a right to demand performance of the performances from the promising debtor, then we can speak of the existence of a complete contract for the benefit of a third party9, in accordance with Article 129/210 of the TCO.
An incomplete contract for the benefit of a third party, in parallel with the explanations we made in the paragraph above, are contracts where the third party cannot directly demand the performance of the performance. Although such contracts stipulate that the performance will be made to the third party, the third party cannot demand the performance, unlike in complete contracts for the benefit of a third party.
Finally, we should note that most authors in the literature state that the main rule is an incomplete contract for the benefit of a third party, and complete contracts for the benefit of a third party are an exception to the main rule11.
As can be seen, in contracts for the benefit of a third party, the third party is not a party to the contract. In these contracts, with a provision added to the contract by the stipulating creditor, the performance is made to the third party by the promising debtor. In three-party contracts, the third party is a party to the contract and has an obligation to perform its own performance.
IV. EXAMPLES FROM TURKIYE AND THE WORLD
Given that the legal regulations of countries differ from each other, it is inevitable that differences will also arise in practice.
In this section, in light of the explanations we made above regarding three-party contracts, examples of three-party contracts applied especially in our country and other countries will be given, and their legal nature will be explained.
A. Examples from Turkiye
In practice, three-party contracts are used in different areas. Assignment agreements, ordinary partnership agreements, and inheritance distribution agreements fall under the definition of multi-party contracts we made in the first part and can be given as examples of three-party contracts when made between three parties.
In evaluating whether a contract is multi-party or not, the number of parties with independent obligations in the regulated contract is taken as a basis12.
In assignment agreements, by their nature, the assignor, the remaining party (parties to the assigned contract), and the assignee are involved. The types and legal nature of assignment agreements will be discussed in detail below.
Ordinary partnership agreements, in which the parties independently undertake different obligations for a common purpose, are another example of three-party contracts encountered in practice. Similarly, inheritance distribution agreements can also be given as examples of three-party contracts since the parties undertake independent performances.
1. Assignment Agreements
Assignment agreements are contracts that aim to transfer a legal relationship to a third party outside the contract who is not a party to the existing relationship. Unless there is a regulation in the law or between the parties prohibiting the transfer, the transfer transaction can be a contract as well as a commercial enterprise.
a. Assignment of Contract
With the assignment of a contract, an existing contractual relationship is transferred to a third party outside the contract. In Article 205 of the TCO13, which is regulated under the same heading, it is stipulated that three parties are involved in the assignment of a contract. According to the said regulation, the assignment of a contract takes place between the assignor (who may be the creditor or debtor of the main contract), the remaining party (who may be the creditor or debtor of the main contract), and the assignee (third party). As a result of the assignment transaction, the assignor’s rights and obligations will pass to the assignee. The assignment of the contract does not change the number of parties to the main contract; the third party replaces the party withdrawing from the contractual relationship.
According to Article 205/3 of the TCO, “The validity of the assignment of the contract is dependent on the form of the assigned contract.” According to this provision, it is understood that the assignment transaction will have legal effect with a separate contract to be made between the parties mentioned in the paragraph above, and the contract to be made will be subject to the form requirement of the main contract from which the rights and obligations arise. For example, if a person wants to transfer the obligations arising from a suretyship agreement to which he is a party, a deed of assignment must be prepared with the other parties to the suretyship agreement to carry out the said assignment transaction, and it must be made in qualified ordinary written form in accordance with Article 583 of the TCO, which regulates the form requirements of the suretyship agreement. This situation is one of the exceptions to the principle of freedom of form, which is the main rule in the Turkish Code of Obligations system.
b. Accession to Contract
Accession to a contract is similar to the assignment of a contract regulated in Article 205 of the TCO, but they are different institutions. As explained above, in the assignment of a contract, rights and obligations are transferred to a third party. On the other hand, accession to contract is regulated in Article 206 of the TCO. The said regulation is as follows: “Accession to a contract is an agreement made between the acceding party and the parties to an existing contract to join the contract alongside one of the parties, resulting in the acceding party having the rights and obligations of the party alongside whom it joins, together with that party.” As can be understood from the provision, as in the assignment of a contract, the parties to the main contract and the party wishing to accede to the contract can carry out this transaction with a contract. However, as a result of the contract made, one of the parties to the main contract does not withdraw from the relationship, instead, the third party joins the contract alongside one of the parties and becomes jointly and severally liable for the obligations of the party it joins14. Therefore, it is possible to consider this new contract to be made as a three-party contract.
A regulation similar to the regulation for the assignment of a contract also exists for accession to a contract. According to Article 206/3 of the TCO, for the accession to a contract to be valid, the contract to be made will be subject to the form requirement of the contract to which accession is made. Continuing with the example we gave above, if a third party wants to accede to an existing suretyship agreement as a surety, the accession contract must be made in qualified ordinary written form in accordance with Article 583 of the TCO, which regulates the form requirements of the suretyship agreement.
c. Transfer of Commercial Enterprise
The transfer of commercial enterprise is regulated in Article 11/3 of the Turkish Commercial Code (“TCC”)15 numbered 6102 and article 202 of the TCO. Both regulations focus on the transfer of the enterprise and do not contain any provision regarding the transfer of contracts to which the enterprise is a party16.
Different views have emerged in the literature on this subject. Kevork Acemoğlu argued that in the transfer of contracts concerning commercial enterprises, since obtaining the consent of the remaining party would create difficulties for the commercial enterprise and be impractical, the contracts should be transferred without requiring any additional transaction in the transfer of the commercial enterprise17.
On the other hand, Fatih Arıcı argues that if rights and receivables are not excluded during the transfer of the commercial enterprise, existing contracts should pass to the transferee without requiring an additional assignment agreement18.
To address the deficiency, other legal provisions regarding the transfer of enterprises can be examined to see how the issue is handled there. Article 6 of the Labor Law numbered 485719 stipulates that in the event of a transfer of a workplace or a part thereof, existing employment contracts will transfer to the transferee with all rights and obligations as of the date of the transfer. Considering the regulation, in our opinion, the deficiency in the TCC and TCO should be remedied in accordance with the Labor Law. However, until the deficiency is remedied, we argue that the contracts should pass to the transferee without requiring the consent of the remaining party, in line with Arıcı’s view.
2. Ordinary Partnership Agreements
Ordinary partnership agreements are regulated between Articles 620 and 645 of the TCO. Article 620 of the TCO defines ordinary partnership agreements as “...a contract in which two or more persons undertake to combine their labor and assets to achieve a common purpose.” As can be understood from the definition, at least two persons (real or legal) are required for the formation of ordinary partnership agreements, and more than two persons can also be parties to the contract.
At this point, since it complies with the criteria we explained while defining three-party contracts, that there must be three independent persons and independent contractual performances of these three persons, it is possible to evaluate ordinary partnership agreements within the scope of three-party contracts.
The obligations of the partners are regulated in Article 621 of the TCO. According to the said regulation, “Each partner is obliged to contribute to the partnership a share in the form of money, receivables, other property, or labor.” As can be seen, each partner is obliged to pay/ bring a contribution share that he/ she will determine, and which is specific to him/ her.
3. Inheritance Distribution Agreements
Inheritance distribution agreements are contracts made generally between heirs after the death of the testator, determining the principles of inheritance distribution. These agreements, regulated in the articles of the Turkish Civil Code titled “Transfer of Inheritance Share” and “Distribution”, can generally be bilateral or multilateral. The number of parties can increase depending on the number of heirs.
Inheritance distribution agreements, when considered in the context of the concept of three-party contracts, touch upon an interesting point. Three-party contracts are generally contracts in which three independent parties are bound by different rights and obligations. In inheritance distribution agreements, although there are multiple heirs, and each heir appears as a separate party, they all aim to achieve the same legal purpose, namely, the distribution of the inheritance. Therefore, it is difficult to say that inheritance distribution agreements fully fit the definition of “three-party contract”. Rather, it should be considered as a special type of multilateral contract.
However, a three-party contract structure can be formed with the participation of a third party in the inheritance distribution agreement. For example, if a third party to whom one of the heirs transfers his/her inheritance share or an institution mediating the inheritance distribution becomes a party to the contract, the contract can take on a three-party structure. In this case, the parties to the contract will have different rights and obligations. While the heirs agree on the distribution of the inheritance, the third party will have rights and obligations related to the share it acquires, or the mediating institution will be under the obligation of impartiality.
B. Examples around the World
1. Escrow Agreements
Escrow agreements are an atypical type of contract that is not included in our legislation. In escrow agreements, the parties keep their performances in an escrow. For example, in a work contract, the employer delivers the payment to be made for the work to an escrow agent, and the escrow agent keeps the price on behalf of the employer. When the contractor completes the work, the escrow agent will carry out the necessary checks, and if he deems the work sufficient, he will accept the work on behalf of the employer and pay the work price kept by him to the contractor on behalf of the employer.
When evaluated in this respect, escrow agreements also have a function that provides a security purpose. With the escrow agreement to be made, the contractor secures the payment he will receive.
In escrow agreements, there must be three parties: the transferor, the transferee, and the escrow holder. Since these parties have their own independent obligations, escrow agreements should also be accepted among three-party contracts. The transferor will deliver the performance subject to the contract to the escrow holder, and the escrow holder will deliver the price received to the transferee. The transferee will perform its own performance in the main contract20. In addition to this, the transferor and the transferee are obliged to pay the fee of the escrow holder. They can decide between themselves how the fee will be paid.
Although escrow agreements and letters of credit are similar due to their use as security, they are legally different institutions. In a letter of credit, a special account is opened with an instruction to be given to the bank by the transferor, and the bank is authorized to make payment to the beneficiary21. The bank will not be responsible for the transferee’s failure to receive the payment, and the transferee will direct its requests to the transferor. However, in escrow agreements, as mentioned above, the parties have independent obligations from each other. If the transferee cannot receive the payment from the escrow holder, it will have to direct its requests to the escrow holder.
V. SECURITY AND GUARANTEE MECHANISMS IN TURKISH LAW
A. Concept of Security
Securities are mechanisms used by the parties to secure the performance of their obligations. In the Turkish legal system, securities are divided into two as real security and personal security. In this part of our article, the types of securities in the Turkish legal system will be examined and explained.
1. Real Security
Real security is the establishment of a real right on a property owned by the debtor or a third party in order for the creditor to secure his receivable22. Real securities can be established by establishing a pledge right on movables, immovables, and commercial enterprises.
a. Pledge on Movables
The scope of pledge on movables consists of the pledge right established on movables. Movable property is defined in Article 762 of the Turkish Civil Code (CC)23 numbered 4721 as: “The subject matter of movable property are material things that are movable by their nature, as well as natural forces that are capable of being acquired and that do not fall within the scope of immovable property.” As can be understood from the definition, for a thing to be qualified as movable, it must first be of a movable nature. It can also be understood from the legal regulation that things that are not of a movable nature are qualified as immovables.
For a pledge to be validly established on movables, if the movable property is subject to a register, the registration transaction must be carried out on this register. In addition, it is also possible to establish a pledge on rights and receivables that are due or will become due in the future. In this respect, pledge on movables can be classified as “unregistered pledge on movables”, “registered pledge on movables”, and “pledge on rights and receivables”.
i. Unregistered Pledge on Movables
According to Article 939 of the CC, except for exceptional cases listed in the law, for a pledge to be validly established on movables, the possession of the movable property subject to the pledge must be transferred to the creditor.
In case of payment of the debt, the creditor is obliged to return the property in his possession to the debtor (pledgor). Until the debt is completely extinguished, the creditor may refrain from returning the pledged property. If the debt is not paid, the creditor may request the sale of the pledged property in accordance with the provisions of the Enforcement and Bankruptcy Law24 numbered 2004 regarding the realization of the pledge, collect his receivable from the sale price, and deliver the remaining amount, if any, to the debtor.
ii. Registered Pledge on Movables
For movables registered in a certain register to be validly pledged, the said pledge transaction must be registered in the register. The main rule for the establishment of a pledge is the transfer of possession, and registered pledge on movables is an exception to the main rule.
The first of these exceptions is the ship mortgage regulated in Article 1012 et seq. of the CC. Article 1015 of the CC regulates the form requirements for the establishment of a ship mortgage. According to the said regulation, the parties must make a written agreement regarding the establishment of the ship mortgage, and their signatures must be notarized. As can be seen, the law imposes an official form requirement for the contract to be made. After this stage, the contract made must also be registered in the ship register. In this respect, for ships, it is a type of pledge that does not require the delivery of possession but requires registration25.
Another exception relates to the pledge of aircraft. Aircraft, like ships, have their own specific register. For a pledge transaction to be validly made, it must be registered in this register. According to Article 70 of the Turkish Civil Aviation Law (TCAL)26 numbered 2920, as in the registration of a ship mortgage, for mortgage establishments concerning aircraft, a written contract must be made between the parties, and after the signatures are notarized, the mortgage will be established with its registration in the register.
iii. Pledge on Rights and Receivables
According to Article 954 of the CC, transferable rights and receivables can be pledged. The rights and receivables mentioned here are receivables that can be converted into money27. In this case, the party to the contract from which the right arises does not change, the pledge creditor acquires a pledge right on the receivable right of the pledgor. Unless there is a provision to the contrary, the provisions regarding pledge dependent on delivery also apply to the pledge of these28.
b. Pledge on Immovables
As with the pledge on movables, in the pledge on immovables, the creditor applies the pledge on immovables to secure his receivable. Pledge transactions to be applied on immovables must be registered in the land registry. The most common types of pledge on immovables are (i) mortgage, (ii) income certificate, and (iii) mortgage bond.
A mortgage will be valid with its registration in the land registry on the immovable property belonging to the debtor. Thanks to the mortgage, the creditor secures his receivable and obtains the right to sell the immovable property and collect his receivable from the sale price if the debtor fails to pay his debt. If the amount obtained as a result of the sale is not sufficient to cover the debt, the debtor will continue to be liable with his remaining assets. Although the transfer of the ownership of the mortgaged immovable property to the creditor seems like a more practical solution instead of selling it, this is not possible due to the lex commissoria prohibition. This prohibition prevents the mortgage creditor from being unjustly enriched at the expense of the debtor’s difficult situation.
An income certificate is a security that secures the receivable and constitutes an immovable charge on the immovable property belonging to the debtor. Unlike a mortgage, the income certificate does not result in the debtor’s liability with all his assets. If the amount obtained from the sale of the immovable property is not sufficient to cover the debt, the creditor cannot resort to the debtor’s remaining assets29.
A mortgage bond has mixed characteristics of both a mortgage and an income certificate. If the amount obtained as a result of the realization of the immovable property is not sufficient to cover the debt, the debtor will continue to be liable with his remaining assets.
c. Pledge on Commercial Enterprise
With the Law on Pledge on Movables in Commercial Transactions (LPMCT)30 numbered 6750, it has become possible to pledge commercial enterprises and the movable properties subject to this commercial enterprise without requiring their delivery to the pledge creditor, by ensuring their registration in a specific register. This is an extremely important regulation for the properties subject to the commercial enterprise. Because, considering that traders mostly resort to this method for financing their commercial activities, if they had to deliver the properties that would enable them to carry out production activities, they would not be able to carry out production activities to fulfill their debts. With this law, another exception has been introduced to the rule of transfer of possession, which is required for the establishment of a pledge on movables.
2. Personal Security
Personal securities, like real securities, are one of the methods resorted to by the creditor to secure his receivable. Unlike real securities, instead of establishing a real right in favor of the creditor on his assets, the debtor makes a third party liable with his assets in case the debtor fails to fulfill his debt.
Personal securities are mostly encountered in practice such as (i) suretyship, (ii) guarantee, and (iii) bank letters of guarantee.
a. Suretyship Agreements
Suretyship agreements are regulated in Article 581 et seq. of the TCO. Within the scope of the definition, we made above, in suretyship agreements, a surety undertakes to be liable with his personal assets to the creditor in case the debtor fails to fulfill his debt.
For a suretyship agreement to be validly made, there must be a due receivable. However, as stated in Article 582 of the TCO, a suretyship agreement can also be made for a debt that will arise in the future, with the effect and consequences arising at the moment the debt arises.
Suretyship agreements are one of the exceptions to the principle of freedom of form that we explained in the first part of our article. The legislator has imposed strict form requirements to encourage the surety to think. The said form requirements are regulated in Article 583 of the TCO, as follows: “A suretyship agreement is not valid unless it is made in writing and the maximum amount for which the surety will be liable and the date of suretyship are specified. It is a requirement for the surety to indicate in the suretyship agreement in his own handwriting the maximum amount for which he is liable, the date of suretyship, and if he is a jointly and severally liable surety, this capacity or any expression to that effect.” As can be seen, it is not sufficient for the agreement to be made in writing, but the legislator requires the matters listed in the article to be written in the surety’s own handwriting. In addition, according to Article 584 of the TCO, a suretyship given without the consent of the spouse is invalid.
b. Guarantee Agreements
In guarantee agreements, the guarantor undertakes the risk of loss that may arise from the guarantee holder’s entering into an enterprise or a third party’s failure to fulfill his debt in a debt relationship31.
One of the main differences between guarantee agreements and suretyship agreements is the form requirement. Guarantee agreements are subject to freedom of form, while suretyship agreements must be made in qualified ordinary written form.
While the liability limit of the surety is certain in suretyship agreements, the limit in guarantee agreements is the loss of the guarantee holder. Since the amount of loss will not be certain at the time the guarantee is given, it can be said that the guarantor’s liability is more serious.
A suretyship agreement is dependent on the main debt. In other words, if the contract from which the main debt arises is invalid, the suretyship agreement will also be invalid. In addition, when the main debt is extinguished, the surety’s debt is also extinguished. On the other hand, the situation is different in guarantee agreements. The guarantor’s debt is not dependent on the main debt, and the guarantor’s liability may arise even if the debtor fulfills his debt. For example, if the main debtor performs his debt late, the guarantor may have to compensate the guarantee holder for the losses arising from this.
In a suretyship agreement, if the surety has to make payment, he subrogates to the creditor’s rights to the extent of the amount he pays. However, this is not the case in guarantee agreements
c. Bank Letters of Guarantee
Guarantee letters of guarantee are mostly used in practice for the purpose of guaranteeing long-term works by a letter issued by a bank. The creditor may request a letter of guarantee if the debtor fails to fulfill his debt or to compensate for his potential losses. If the debtor does not pay his debt or if the creditor suffers a loss, he cashes the said letter of guarantee and collects his receivable or ensures that his losses are compensated.
A bank letter of guarantee is a document in which the bank undertakes to pay a certain amount to the beneficiary in case a certain obligation is not fulfilled.
In parallel with the explanations we made above, personal security is a person’s undertaking to cover the loss that may arise from the debtor’s failure to fulfill his debt. In this type of security, the person who is the surety is liable to the creditor together with the debtor. In a bank letter of guarantee, the bank undertakes to pay a certain amount to the beneficiary if certain conditions are met. This undertaking is limited to the bank’s own assets and is not dependent on the debtor’s person.
Unlike suretyship, a bank letter of guarantee is a primary obligation. In other words, when the conditions specified in the letter of guarantee are met, the bank is directly liable to the beneficiary. This liability is independent of whether the debtor pays his debt or not. In suretyship, the surety’s liability is dependent on the debtor’s failure to fulfill his debt. In a bank letter of guarantee, the bank makes a commitment in its own name and on its own account, while in suretyship, the surety assumes liability for the debtor’s debt.
VI. CONCLUSION
This study aimed to examine the security (guarantee) mechanisms in the context of three-party contracts. By addressing the basic elements and types of contracts, the unique structure and functioning of three-party contracts were emphasized. It was highlighted that three-party contracts exhibit a structure in which each party has different rights and obligations, and independent performances are involved.
Three-party contracts, due to their structure, create a complex balance of rights and obligations between the parties. This complexity also brings the risk of the parties failing to fulfill their obligations. Security mechanisms are used to prevent potential problems that may arise from this situation.
In multilateral contracts, especially in threeparty contracts, each party has a different performance, and these performances may be interconnected. Failure of one party to fulfill its performance may cause other par - ties to fail to fulfill their performances or suffer losses. Security mechanisms reduce this risk and encourage parties to adhere to the contract.
In the assignment of debt, the remaining party (creditor of the assigned contract) may request a security from the assignee or assignor to secure the performance of the obligation by the third party assignee. This way, he can prevent losses that may arise from non-performance of the debt. Similarly, in ordinary partnership agreements, failure of one of the partners to fulfill his obligations may cause other partners to suffer losses. In this case, risks can be minimized by using security mechanisms between the partners.
The types of securities we examined in our study vary in order to meet the different needs of three-party contracts. The parties can choose one or more of the real or personal security types according to the characteristics of the contract and the extent of the risks.
In the study, examples of contracts that can be established as three-party contracts frequently encountered in practice in Turkiye, such as assignment agreements, ordinary partnership agreements, and inheritance distribution agreements, were examined in detail. Through these examples, how three-party contracts are used in different areas and what responsibilities each party undertakes were explained. In addition, by giving examples from world practices such as escrow agreements, examples and operations of three-party contracts in different legal systems were discussed comparatively.
Security (guarantee) mechanisms are important tools used to secure the performance of contracts and minimize the risks of the parties. In this study, real and personal security types were examined in detail; the operation and legal consequences of different security mechanisms such as pledge on movables, pledge on immovables, pledge on commercial enterprise, suretyship, guarantee, and bank letters of guarantee were explained. It was particularly emphasized that bank letters of guarantee are not of a personal security nature and constitute a primary obligation.
In conclusion, the use of security (guarantee) mechanisms in three-party contracts is of great importance for the healthy execution of contracts and prevention of possible risks. It is crucial for the parties to determine the appropriate security (guarantee) mechanisms according to their needs and the subject matter of the contract during the contract formation phase and to include them in the contract text in order to prevent future disputes and maintain contractual relationships securely. This study is expected to contribute to a better understanding of security (guarantee) mechanisms in three-party con - tracts and to finding solutions to problems encountered in practice
BIBLIOGRAPHY
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BURCU ERBAYRAKTAR , Prohibition of Assignment of Receiv - ables by Contract (Pactum de Non Cedendo), Doctoral Disserta - tion, Istanbul University, 2020.
CEREN CERENOĞLU, Transfer of Commercial Enterprises, Doc - toral Dissertation, Yeditepe University, Istanbul.
DİDEM ÖZCAN, Assumption of Debt in Turkish Law, Doctoral Dissertation, Istanbul University, 2014.
ESRA HAMAMCIOĞLU/ ARGUN KARAMANLIOĞLU, Form in Partnership Agreements, Marmara University Faculty of Law Jour - nal of Legal Research, Vol. 22, No. 3, Istanbul 2016.
GAMZE TURAN, Differences Between Guarantee and Suretyship Agreements and The Nature of Personal Security in Bank Credit Card Agreements, Journal of the Union of Turkish Bar Associations, No. 66.
HALUK NOMER, Law of Obligations General Provisions, 16th Edition, Istanbul 2018. H.
KÜBRA ERCOŞKUN, Freedom to Determine the Content of a Contract and its General Limit: TCO Art. 27.
KEMAL OĞUZMAN/ TURGUT ÖZ, Law of Obligations General Provisions, 22nd Edition, Istanbul 2022.
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FOOTNOTE
1 Kemal Oğuzman/ Turgut Öz, General Provisions of the Law of Obligations, 22nd Edition, Istanbul 2022, p. 42.
2 See articles 3 et seq. of the Turkish Code of Obligations No. 6098, Official Gazette (OG) No. 27836, dated February 4, 2011, regarding the requirements for the validity of offer and acceptance.
3 Oğuzman/ Öz, General Provisions of the Law of Obligations, 22nd Edition, Istanbul 2022, p. 144.
4 Oğuzman/ Öz, General Provisions of the Law of Obligations, 22nd Edition, Istanbul 2022, p. 45.
5 Oğuzman/ Öz, General Provisions of the Law of Obligations, 22nd Edition, Istanbul 2022, p. 45.
6 H. Kübra Ercoşkun, Freedom to Determine the Content of a Contract and its General Limit: Turkish Code of Obligations (TCO) Art. 27, p. 12.
7 Oğuzman/ Öz, General Provisions of the Law of Obligations, 22nd Edition, Istanbul 2022, p. 48. Ercoşkun, Freedom to Determine the Content of a Contract and its General Limit: Turkish Code of Obligations (TCO) Art. 27, p. 12.
8 Kumru Kılıçoğlu Yılmaz, Contract for the Benefit of a Third Party, Marmara University Faculty of Law Journal of Legal Research, 2016.
9 Haluk Nomer, General Provisions of the Law of Obligations, 16th Edition, Istanbul 2018, p. 457.
10 For the legal provision, see: “Third parties or their successors may also demand performance of the obligation if it is consistent with the purpose of the parties or with custom and practice. In this case, after the third party or their successors notify the debtor of their intention to exercise this right, the creditor cannot release the debtor, nor can they change the nature and scope of the debt.”
11 Yılmaz, Contract for the Benefit of a Third Party, Marmara University Faculty of Law Journal of Legal Research, 2016, p. 1765, quoting Şener Akyol, Contract for the Benefit of a Third Party, Istanbul 1987, p. 11.
12 Şerafettin Ekici, Escrow Agreement, Istanbul Medipol University, Doctoral Thesis, Istanbul 2018, p. 102.
13 For the legal provision, see the text of the Turkish Code of Obligations https://www.mevzuat.gov.tr/mevzuatmetin/1.56098.pdf (Accessed January 28, 2025).
14 Didem Özcan, Assumption of Debt in Turkish Law, Doctoral Thesis, Istanbul University, 2014, p. 23.
15 Official Gazette (OG) No. 27846, dated February 14, 2011.
16 Ceren Cerenoğlu, Transfer of Commercial Enterprise, Doctoral Thesis, Yeditepe University, 2022, p. 222.
17 Kevork Acemoğlu, Transfer of Assets or Commercial Enterprise According to Article 179 of the Code of Obligations, p. 78, quoted in Cerenoğlu, Transfer of Commercial Enterprise, Doctoral Thesis, Yeditepe University, Istanbul, p. 224.
18 M. Fatih Arıcı, Transfer of a Commercial Enterprise with its Assets and Liabilities, Istanbul 2008, p. 137, quoted in Cerenoğlu, p. 224.
19 Official Gazette (OG) No. 25134, dated June 10, 2003.
20 Ekici, Escrow Agreement, Doctoral Dissertation, Istanbul Medipol University, Istanbul 2018, p. 105.
21 Ekici, Escrow Agreement, Doctoral Dissertation, Istanbul Medipol University, Istanbul 2018, p. 135.
22 Bengi Sermet Sayın Korkmaz, Historical Development of Real Security in Roman Law and Pledge, Turkish Justice Academy Journal, No. 36, 2018.
23 Official Gazette (OG) dated December 8, 2001, No. 24607.
24 Official Gazette (OG) dated June 19, 1932, No. 2128.
25 Kemal Oğuzman/ Özer Seliçi/ Saibe Oktay Özdemir, Property Law, 25th Edition, Istanbul 2023, p. 1148.
26 Official Gazette (OG) dated October 19, 1983, No. 12196.
27 Oğuzman/ Seliçi/ Özdemir, Property Law, 25th Edition, Istanbul 2023, p. 1252.
28 https://www.mevzuat.gov.tr/mevzuatmetin/1.5.4721.pdf (Accessed January 20, 2025), Article 954/2.
29 Oğuzman/ Seliçi/ Özdemir, Property Law, 25th Edition, Istanbul 2023, p. 1028.
30 Official Gazette (OG) dated October 28, 2026, No. 29871.
31 Gamze Turan, Differences Between Guarantee and Suretyship Agreements and The Nature of Personal Security in Bank Credit Card Agreements, Türkiye Bar Association Journal, No. 66, p. 28, quoted in Haluk Tandoğan, Law of Obligations Special Debt Relationships, Vol. II, Istanbul 2002, p. 940.
